China Investment An Open Book?

60 Minutes: Sovereign-Wealth Fund's President Promises Transparency

(CBS)  But people who do understand the capital markets, like economist Peter Navarro, say there’s reason to be wary.

"What do you say to the Chinese when they complain that sovereign-wealth funds have been around for decades, and there hasn't been a peep of protest or concern, until the Chinese developed a sovereign-wealth fund?" Stahl asked Navarro.

"I think that the Chinese can say, 'Well, you're singling us out,'" Navarro said. "And we say, 'Yeah, we're singling you out. We think, based on your historical behavior, China, that you're going to do mischief in our economy.'"

He says the problem is that China has over $1.5 trillion in reserves, the world's largest currency surplus. And it's growing by $1 billion a day.

"China has so much money that they can spend buying U.S. companies that the danger is that they can strip these companies," Navarro said. "They can strip the companies of jobs, research and development, technology."

"Do we have any evidence, any reason to believe that they’re really going to do that?" Stahl asked.

"It’s not a clear and present danger," Navarro said. "It’s a clear and future danger."

As he told a Congressional panel in February, his fears grow out of China’s pattern of behavior: its unfair trade practices, currency manipulation, technology espionage, and a refusal to crack down on counterfeiting.

Gao’s response has been to avoid sensitive industries, limiting his U.S. investments to our financial sector.

"Theoretically, we are allowed to invest in anything," Gao said. "But we look around. If someone comes to us proposing to us to sell some share of a military factory or something, we don't want to touch it."

Asked why they don't want to "touch" the military, Gao told Stahl, "Because we already getting too much, almost unfair amount of attention. You know, the Chinese culture is being self-effacing, try to hide yourself, don't stick your head out for people to knock on."

Gao was raised in China during the cultural revolution, forced to work in an arms factory and on the railroad. But then he did well in school and was sent to study law at Duke University in North Carolina. In 1986 he became the first Chinese national admitted to the New York State Bar.

"And then, you went to work for Richard Nixon's law firm," Stahl pointed out. "Basically working on Wall Street issues. Is that correct?"

"Yes," Gao said.

Stahl continued: "So you understand the American banking system from the legal--"

"A little bit," Gao said.

He took that little bit back home to China and helped reform its economy and create its stock exchange. Now, at 54, he's become one of the most sought-after investors in the world, but one with an unimpressive record in the United States thus far.

"The timing couldn't be worse," Stahl noted.

"You said it."

He has come out even so far in his $5 billion investment of Morgan Stanley; but the fund also has $3 billion in Blackstone, the private equity firm, and its stock has lost nearly half its value. But Gao says he’s not selling.

"Are you under any political pressure from the political people in the Chinese government on what kinds of companies to invest in?" Stahl asked.

"So far, none," Gao said.

"What if our two governments had a serious dispute?" Stahl asked.

"Over Taiwan?" Gao asked.

"Yeah. Now could your government come in and say to you, 'pull your money out now?'"

"It could be. But I seriously doubt that will happen."

"It would hurt you, too," Stahl said.

"Definitely," Gao said. "It would hurt me. Hurt the company. Hurt China."

[cmg881]

"The first step is to outlaw and stop sovereign wealth funds altogether." -- SharnCedar

That''s like saying we should outlaw rich people or bad weather. How would we even begin to "outlaw" something over which we have no jurisdiction? And who would do it? Washington? The "international community" (whatever that is)? There''s a reason these funds are called "sovereign": They are arms of sovereign governments, which may create as many SWFs as their reserves allow and use them for whatever purpose they wish. If by "outlaw" you mean the U.S. or some international grouping (the OECD?) should prevent SWFs from buying locally resident firms, that raises other questions. What of the free-trade principles we are constantly lecturing the rest of the world about? What about the SFWs of Canada or Norway, whose capital we could surely use and who are eager to invest in U.S. assets? Ms. Stahl''s report, and much else that has been written about SWFs, tends to simplify the issue as a matter of benign, free-market economies being threatened by predatory foreign money. It''s not as simple as that. But then, there''s very little that TV "journalism" can''t boil down to some misleading simplicity.

[sharncedar]

"Although we live in a democracy, we essentially live in an economic anarchy. "

Posted by rharm888 at 05:01 PM : Apr 07, 2008

Precisely, as opposed to the Chinese system of a directed and controlled economy whose purpose is to a military and racial conquering of nearby peoples such as the Tibetans and the Uighurs and the Taiwanese.

Anarchy as you call it, if practiced by every nation, is the greatest good for the whole world. Then each individual can contribute based on their ability. This is a "flaw" in America only when cheater countries exist, such as India and China. Thus for the common good, we need to stop the "cheaters" or else all of us must become cheaters too to survive.

It''s like the prisoner''s dilemma in game theory. Do we have the will to work together to stop the cheaters for the common good? Or will they prevail?

The first step is to outlaw and stop sovereign wealth funds altogether.

[user168-2009]

So, stop the dumb war that is wasting trillions of U.S. dollars!

[rharm888]

This interview illuminates several flaws in the U.S. System which have more to do with American attitudes than with economics.

1. Money is only as good as what it represents, thus the declining value of U.S. Goods & Services is only represented economically. A gallon of gas, whether it cost $0.15 or $5.00 /gallon is still only a gallon of gas.

2. Our competitive economic system has made us paranoid. If U.S. companies were competent, Chinese companies wouldn''t have to bail them out.

3. There are serious flaws in the U.S. Legal System, Corporate America, and the U.S. Educational system which prevent necessary changes and inhibit new ideas/industry. Although we live in a democracy, we essentially live in an economic anarchy.

[lalinda4]

Dear Sir,
Borrowing from China might work short term but you''re going to have to get Fed Chm. Bernanke to quit lowering the CD rates because it''s not going to get the economy going. There''s no guarantee that they are going to pass enough through to the borrowers. I understand the investment bankers that are involved in credit cards are even raising their interest rates. He''s bailing out the wrong people and the Fed still isn''t putting regulations in place to stop what''s going on. Too many lobbyists. The only thing that would change the investment banks technique would be if they nationalized one when they got in trouble like England did with Northern Rock in February. Look it up on the Web.
Yours truly, Disgusted Middleclass Taxpayer

[jeprox1]

Before I came to the US, I lived in a small town in the suburbs of Manila. The town called Marikina was known for making world class hand made shoes. We own a shoe factory back then. We buy our raw materials, as most factories did, from chinese suppliers. Later on, the chinese hoarded the materials and sell it for more than double the price later on, killing all the shoe factories in our town. Now, non of the shoe factories is owned by the locals in my town. Guess who owns the factories now?

I hope that a similar thing won''t happen here in the states.

[missingamerica]

On the one hand, we have the open model of an economy and a people, the United States.

Posted by SharnCedar at 01:20 PM : Apr 07, 2008

Well, not counting things like hedge funds, which have resisted oversight - with this Administration''s assistance - to even the extent that stock-issuing corporations must undergo.

And now we all have to pay huge sums of money for the havoc wreaked by just that one little piece of the hidden powers that control our economy...

[sharncedar]

There is a dramatic struggle in ideologies on the world stage. On the one hand, we have the open model of an economy and a people, the United States. A country that allows unlimited immigration, doesn''t restrict the commerce or trade or access to its markets, and gives legal rights and protections to its citizens.

On the other hand we have the Chinese model. Their markets are closed. Racial minorities are shot in the steeets of Tibet. They don''t allow the free movement of people, commerce, or ideas. Workers are without basic human rights, they live and die at the whim of the state or worse of petty corrupt local officials.

Every time it appears to the world that the United States is failing, it will encourage so many nations to adopt the ruthless statism of China. Men like Mugabe follow the Chinese lead already, but other countries hang on the brink, such as South Africa.

This is every bit as dramatic as the cold war, and unfortunately the Chinese are winning in a runaway victory at this time. The fate for the world will indeed be ugly. We must insist that the concept of a "sovereign wealth fund" is an attakc on the open market concept, that it is an assertion of the rights of a ruthless state over the rights of people and commerce, and if we do not fight this thing with every effeort of our system we ill fall into the ultimate darkness, to die along side the other forgotten races killed by the Chinese or other nationalistic haters.

[onthebeat-2009]

Reckon we''d take advantage of China in the way some are suggesting they might do to us? How about America taking some responsibility for this mess we''re in right now.

[mrsweeney8]

Ms. Stalh,

People like to compare these current concerns with US complaints about Japanese investments in the US 15 years ago. Sony is not the Japanese government. Sony is a corporation motivated by profit. The Chinese Sovereign Wealth Fund represents the Chinese government. If California would change lucrative investments in Iran and Darfur for political reasons, why don''t we think China would ever do this? And their motivations aren''t as noble as CalPERS'' was. CalPERS tried to influence these countries. Do we really think China would never try to influence our companies or try to manipulate our economy? They''re influence will only grow from where it is today.

The answer is to spend no more than we earn. Period. And don''t give away $450 billion when you have to borrow to do that. Guess who''s lending the money for that stimulus?